Homebuyers snagged what few properties were listed in May, driving up sales for the month. But record-low inventory continues to choke off a major segment of the housing market.
Sales of previously owned homes edged up 0.2% in May from the month before to an annualized rate of 4.30 million, data from the National Association of Realtors out Thursday showed. That was down 20.4% from a year ago and exceeded the 4.25 million expected by economists, per Bloomberg data.
The deficit of homes remains a headwind in the housing market as fewer potential sellers want to list their homes in today’s higher-rate environment. While the number of homes on the market did increase in May, it was the lowest inventory count on record for the month, NAR said.
"Available inventory strongly impacts home sales, too," NAR Chief Economist Lawrence Yun said in a statement. "Newly constructed homes are selling at a pace reminiscent of pre-pandemic times because of abundant inventory in that sector. However, existing-home sales activity is down sizably due to the current supply being roughly half the level of 2019."
The number of homes for sale increased in May to 1.08 million units, up 3.8% from April’s figure but down 6.1% from a year ago, the NAR reported. It's also below the pre-pandemic norm of 1.9 million homes for sale in the month of May, Yun said in a call.
That syncs with a separate report Wednesday from Redfin that showed the number of houses for sale in the US hit a new low in May, with inventory dropping 7.1% annually to 1.4 million. That's the fewest homes on the market since 2012 when Redfin started tracking the data.
Rate-conscious homeowners remain reluctant to list their homes, sending new listings falling 25.2% year-over-year in May, Redfin found, one of the steepest annual declines on record.
The low-inventory environment has kept competition among buyers steady. About 37.5% sold for over the asking price, down from last May when more than half sold for a premium. But that was still higher than pre-pandemic levels, according to Redfin.
And inventory sat on the market for 18 days in May, up from 16 days a year ago but below the 22 days recorded in April, according to the NAR. Almost three-quarters of homes sold in May sat on the market for less than a month.
"There’s a huge lack of housing inventory in Miami, and that combined with higher interest rates is making homebuyers’ lives very challenging," said Redfin Real Estate agent Rafael Corrales. "Their money just isn’t going as far."
Mortgage rates have been a double-edged sword for buyers. Rates have hurt affordability and discouraged homeowners — who have a mortgage rate well below the prevailing rate — from listing their properties.
In May, rates stayed below 6.5% for three weeks before marching higher in the last week of the month, according to Freddie Mac. Last week, the average rate on the 30-year fixed mortgage came in at 6.69%. This week's rate comes out at noon on Thursday.
"Mortgage rates heavily influence the direction of home sales," Yun said.
Regionally, sales in the Northeast dropped 2.0% from April’s figure to an annualized rate of 500,000 in May, underperforming the same period last year by 25.4%. The median price in this region was $439,000, up 2.5% from the previous year.
In the Midwest, house sales slipped 2.9% from one month ago to an annual rate of 990,000 in May, falling 20.8% from the previous year. The median price in the Midwest was $298,000, up 1.1% from May 2022.
Sales in the South rose 1.5% in May from April to an annual rate of 2.02 million, a 16.5% drop from the prior year ago. The median price in the South was $361,400, down 2.7% from the same period last year.
"The long-term prospect is that affordable regions should hold on much better, compared to more expensive regions," Yun said.
And in the West, sales climbed 2.6% from the previous month to an annual rate of 790,000 in May, down 25.5% from the previous year. The median price in the West was $596,500, down 5.7% from May 2022.
"There was a big swing in the West region, large decline that we have seen in the prior months," Yun said.
This area is "beginning to see the buyer's return especially given that there was more notable price declines out in the West, improving affordability, and has buyers with secure job wanting to take advantage of those lower prices out in the West region on a year over year basis," he added.
Individual investors or second-home buyers, who make up many cash sales, purchased 15% of homes in May, down from 17% in April. Foreclosure notices and short sales made up 2% of sales in May, unchanged from last month and the previous year.
That's still "very, very low levels," Yun said regarding the share of distressed sales. Homes are "getting picked up quickly so it's not lingering in the market."
Looking ahead, Yun expects "price reduction, the median home price to be down 2% this year after the substantial gains that occurred in the three prior years."
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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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